this catastrophe bond market 2025 has broken a slew of records, with many anticipating another stellar year as investors flock to the often-overlooked asset class.

The issuance of so-called CAT bonds surged to $25.6 billion By 2025, this figure will be 45% higher than the record of nearly $17.7 billion set in 2024, according to specialist data provider Artemis.bm.

The offering saw 122 transactions, surpassing the previous record of 95 transactions set in 2023, with 15 first-time sponsors entering the market. Taken together, the records reflect a breakout year for what has long been considered a relatively niche corner of the insurance industry.

Andy Palmer, Head of Insurance Linked Securities (ILS) Structuring, EMEA and Asia Pacific Swiss ReOne of the world’s largest reinsurers said no one could have predicted the number of CAT bond issuances in 2025, describing the feat as “absolutely remarkable”.

“The market is growing by every measure. We’re seeing bigger deals being closed, we’re seeing new sponsors coming into the market, and we’re seeing the risk expand significantly,” Palmer told CNBC via video call.

“I think it’s just a mental shift for everyone who’s paying attention to this area,” Palmer said. “We expect this to continue.”

CAT bonds were first created in the 1990s as a financial instrument designed to raise funds for insurance companies in the event of a natural disaster such as a hurricane or earthquake.

These insurance-related securities are essentially a way for insurance companies or reinsurers to transfer the risk of potentially large losses from extreme events to investors. This in turn provides insurance companies with access to financing to help them pay claims in the event of a disaster.

About 60% of CAT bond market deals tend to have maturities of three years, and when those deals expire in 2026, investors will likely want to renew coverage, Swiss Re’s Palmer said.

“So a very quick rule of thumb might be to look at new issuance in 2023, which we measure at about $15.6 billion, which would provide some floor,” Palmer said.

Palmer said further growth and larger deals are expected in 2026, meaning CAT bond issuance could climb to around $20 billion. If realized, that number wouldn’t be as high as 2025, but it would still be the second-largest release year on record.

The emergence of this asset class as an increasingly mainstream financial instrument comes at a time climate crisis Leading to an increase in the frequency and intensity of extreme weather events.

For example, just in the past few weeks, spreading winter storm Hundreds of thousands of people in the United States were left without power. severe flooding causing severe damage to large parts of Mozambique, Swaziland, South Africa and Zimbabwe, Big heat wave Sweeping southeastern Australia.

Artemis.bm owner and editor-in-chief Steve Evans told CNBC that investor interest in the asset class remains “very high” after many CAT bond fund strategies posted a third consecutive year of double-digit returns in 2025.

“As insurers and others seeking to transfer catastrophe risk increasingly adopt catastrophe bonds as an effective source of multi-year reinsurance, 2026 should ensure another strong issuance year for the industry,” Evans said.

He continued: “The market will also see a large number of mature transactions over the next year, which will drive up cash levels and need to be recycled into new issues or returned to investors.”

“This, coupled with growing investor awareness of the benefits of cat bonds and ILS as a diversified asset class, should further ensure that deal execution remains attractive to buyers of cat bond protection, so at Artemis we expect active cat bond deal flow over the coming months.”

Indeed, while only $683 million in CAT bond issuance has been tracked so far this year, Evans said more than $2 billion in bonds are already in the pipeline and will be settled in the coming weeks.

Bob Smith, president and co-chief investment officer of Austin-based investment firm Sage Advisory Services, said CAT bonds and insurance-related securities are the best options for investors looking to diversify their portfolios in the coming months.

“As a diversified investor? Gosh, that’s the one thing you’re looking for in this whole spreadsheet,” Smith told CNBC via video call.

“That’s the essence of MPT,” said Smith, referring to the acronym for Modern Portfolio Theory, an investment strategy that seeks to balance risk and return across assets.

“Modern portfolio theory says you really need to diversify your portfolio. Well, that’s basically the best thing you can do to achieve that right now,” Smith said.

“Cat bonds achieved double-digit returns in 2025, and cat bond losses were manageable. California wildfires Catastrophe bonds generally have a higher positioning in the catastrophe reinsurance tower. ”

Like Swiss Re’s Palmer, analysts at Fitch Ratings said they expect CAT bond investors to reinvest handsome returns into the ILS market this year, which in turn will boost capital and pressure returns.

“However, Fitch expects investor returns to remain attractive relative to other asset classes in 2026,” they added.